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As cloud technology options grow and evolve, many companies find themselves in a difficult situation as related to their core Enterprise Resource Planning (ERP) systems. Most senior leaders know that cloud ERP is available, but business functions remain largely dependent on legacy systems that were installed back when clouds were related to weather, not business.
Think about it. Some ERP systems were installed in the late 1990s as part of the mad rush to resolve potential “Y2K” issues. Other systems were installed in the early 2000s when the ERP model was to highly customize functionality to meet perceived proprietary needs. And more than a few ERP systems were implemented as a way for organizations to keep up with the Joneses.
Unfortunately, these customized legacy platforms have become costly and difficult to support and now need to be replaced… urgently. Companies that are revisiting the ERP marketplace will find that cloud systems offer a compelling option for an ERP platform. A cloud ERP can simplify system support, decrease hardware and software costs, reduce the need for highly skilled technical engineers, simplify business functionality and allow for mobile access. However, there are several key considerations that should be evaluated as part of a complete cloud ERP assessment.
Make an Upfront Commitment
An ERP installation or replacement is a very large project and will demand a significant amount of time, resources, organization effort, funding and business decision making. An ERP system that is improperly configured or structured can have a lasting impact on a company’s business processes, efficiency, costs and customer service. Any company looking to install an ERP must commit to the time, attention and flexibility needed for the project to be successful.
Be Ready to Overhaul Processes
A cloud ERP model is configurable but not customizable. This means businesses making the switch to a hybrid cloud or full cloud ERP will need to revise their business processes to match the software functionality. Cloud ERP is configurable, but there will still be the need for change.
Companies should consider what tolerance level they have for this type of process change. How receptive will the business functions be to process change? Is the company leadership ready to enforce any required process changes?
Weighing Proprietary Business Functions
A fundamental question for a company evaluating cloud ERP is the proprietary nature of its business functions. Arguably, core functions such as HR, finance, purchasing, asset management, etc. are less proprietary than functions such as e-commerce or online retail. There may be functions within the business that require proprietary capability to support the competitive advantage of the business.
Given that the core cloud ERP is a standard platform, a company should determine if the custom functionality must be separated from the core ERP system. Is the current proprietary functionality already separate from the ERP system? Can it be integrated to the Cloud ERP? Is there a way to restructure some of the proprietary functionality to leverage other options within the cloud?
Subscription Model: Operating vs. Capital Funding
In the past, the purchase and implementation of an ERP system was typically a large one-time capital investment for the software modules, installation and ongoing maintenance. A cloud ERP system is a subscription and therefore becomes an operating expense. Subscriber organizations maintain the right to use the software only if they continue with their subscription.
There will likely be reductions in maintenance costs, hardware costs and technical resource expense required to support a current legacy ERP that can help offset the operating expense of the cloud ERP. Businesses should be aware of the change in the type of funding required for a cloud ERP.
Making Connections: Integration and Interfaces
Another critical consideration for a cloud ERP is how integrated the current legacy ERP system is with other technology platforms in the company. All of these interfaces and integration points will need to be rebuilt using application programming interface (API) capabilities. As part of the cloud ERP project, a detailed analysis will need to be done to understand which interfaces will be required and which can be eliminated. There will be a significant effort to design, develop and support the remaining interfaces. Companies should not underestimate the magnitude of this effort!
Be Aware of Cloud Intellectual Property
In some legacy ERP installations, vendors have provided full access to system details such as database structures, batch processing and even source code. Cloud vendors do not typically offer this access. If the technical team at a company is used to having these types of details then there will be contention with the ERP vendor as this is considered their proprietary intellectual property.
A cloud ERP system offers a viable replacement path for legacy ERP platforms. Most ERP vendors are moving toward a cloud-only offering. Businesses can derive significant benefits from a new cloud ERP system but companies should do the proper upfront analysis, planning and decision making before selecting a cloud ERP.
If these key considerations seem daunting, it may be appropriate to call in an experienced technology leader who can help your company do the proper analysis. A cloud ERP system will be a business asset for years, possibly decades, so it is best that a proper assessment to ensure success is completed.
Author: Ed Winfield
